The Korea Herald


China’s 5-year plan promises big changes

By 이현주

Published : Feb. 28, 2011 - 18:58

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BEIJING (AP) ― China’s leadership is promising to steer the economy in a new direction in its blueprint for the next five years that would empower consumers and narrow a yawning wealth gap but require politically contentious reforms.

The latest Five-Year Plan ― a throwback to central planning but a useful roadmap of party goals ― calls for creating self-sustaining growth based on domestic consumption and reducing China’s reliance on exports and investment. That will require a cut in subsidies to state industries and curbs on local development plans that could provoke a backlash among some in the ruling Communist Party.

The leadership has said for years that China needs to alter a system Premier Wen Jiabao has declared “unbalanced, uncoordinated and unsustainable.” But they avoided major reforms until the global crisis wiped out millions of export-dependent factory jobs and drove home the danger of overreliance on trade.

The plan was approved by party leaders in October and details are due to be announced at the annual meeting of China’s largely powerless legislature that opens Saturday.

“The roadmap is clear, but the extent to which the political will and power is sufficient remains to be seen,” said Alistair Thornton, China analyst for IHS Global Insight.

If carried out, the plan could drive a far-reaching transformation of the world’s second-largest economy from low-cost factory into a major consumer market.

It would shift money from companies to households, which could narrow the gulf between a rich elite and fledgling middle class who have profited from economic reform and China’s poor majority. More consumer demand could help to boost imports, narrowing China’s trade surplus with the United States and other major economies.

The wide-ranging plan also extends to areas from foreign policy to family planning to rural irrigation. It promises more rural health care spending and to help out-of-work farmers find jobs in cities ― a step that also could pay off by helping to promote growth of service industries and consumption.

It promises to allow development, though under government control, of civic groups that support causes from environmental protection to feeding the poor. It envisages no change in rules that limit most urban families to one child and most in the countryside to two.

Achieving its economic goals will require Beijing to cut subsidies to state industry and clamp down on growth based on ever more spending on steel mills and other factories.

In a sign of the leadership’s resolve, Premier Wen announced Sunday that the government was reducing its annual growth target to 7 percent, from the 8 percent goal for each of the past six years. While the economy is certain to grow faster than that, the target has been embedded in planning for so long that a change would send a strong signal to local officials to shift away from breakneck growth and focus on longer-term policies to nurture consumption.

But even with a lower national target, local leaders are unlikely to cooperate by scaling back their own ambitions, said Kenneth Jarrett, chairman for Greater China of consulting firm APCO Worldwide.

“No one will really have 7 percent as their target. Everyone’s going to be higher than that,” Jarrett said. But “the message is that they want growth to slow down.”

The plan comes as President Hu Jintao and other party leaders prepare for next year’s hand-over of power to a younger generation. They are trying to ensure a smooth transition while leaders maneuver furiously in private to secure top posts for younger allies.

The compromises required by such a system raise the risk of “hindering genuine attempts at necessary but painful reforms,” Thornton said.

China has plenty of room to consume more. It relies so heavily on trade and investment that household spending accounts for just 35 percent of its economy, compared with 71 percent in the U.S. and 57 percent in India, according to the World Bank.

But to support small companies and service industries, Beijing needs to let the market set interest rates for bank loans and prices of energy and other resources, winding down a state-run system that subsidizes state companies. Regulators started moving fuel prices in line with global crude costs in 2008, but more changes might alienate party factions that depend on state industry as their political base.

Last week, an official of the Cabinet body that oversees major state-owned companies such as oil giant PetroChina Ltd. and Bank of China Ltd. said they will have to hand over more of their profit to the government. They currently pay only 10 to 15 percent of profits to the treasury, and an increase could help pay for social spending, as well as easing public anger at the wealth of elite state companies.

Beijing can shift money to households by allowing pay hikes and stronger unions. But that is another potential battlefield: Local leaders count on China’s state-authorized labor group to keep investment flowing in by holding down wages.

Already, some provinces and major cities have set the stage for a clash by approving plans for double-digit growth this year based on attracting still more investment.

In social programs, the party plans to expand access to health care, a measure that would allow Chinese families to divert more money to consumer spending, helping to push ahead the consumption drive. Such reforms began in 2009, when the government said it would pump $124 billion into the system over three years.

Individuals now shoulder nearly 40 percent of all health spending, down from two-thirds in 2001. Beijing wants to cut that to below 30 percent by the end of 2015.

Health Minister Chen Zhu said in January the government wants to achieve the developing world’s best health standards. Goals include raising life expectancy to 74.5 years from the current 73 years and lowering death rates of babies and children under 5.

In the countryside, home to some 800 million people, the plan promises more spending to modernize agriculture and increase grain output ― a key concern for Beijing, which sees food security as a priority. China has had seven years of bumper harvests but production is threatened by pollution and the conversion of farmland for industrial use.